Purplebricks has provided an update on its lettings management business, and finally released its delayed half-year figures, which were initially scheduled to be issued to shareholders last month, revealing significant losses in revenue.
The online estate agency admits that the first half of the trading year proved difficult, with its market share falling, instructions plummeting, and total fee income dropping sharply.
H1 22 financial performance
· Financial performance impacted during a period of significant transformation for the Group and by lower market instructions
· Instructions fell by 38% to 21,131 (H1 21: 34,150), but average revenue per instruction (‘ARPI’) increased by 15% to £1,642, driven by higher attachment rates, pricing optimisation and phasing of higher conveyancing income
· Total fee income decreased by 29% to £34.7m (H1 21: £48.8m), with the reduction partially offset by the increase in ARPI. Revenue was down 7% to £41.3m (H1 21: £44.2m), benefiting from revenue earned in the prior period
· Purplebricks’ market share of properties sold by volume was 3.9%, down from 4.8% last year
· Adjusted EBITDA loss of £0.8m (H1 21: profit of £8.4m)
· Loss from total operations of £20.2m including a provision of £3.6m relating to potential claims arising from process issues within our lettings business, £2.7m relating to impairment of goodwill and other intangible assets in the lettings business, and a charge of £7.3m arising from derecognition of deferred tax assets in H1 22 (H1 21: profit of £6.8m, including £2.9m from discontinued Canadian operations)
· Cash and cash equivalents at 31 October 2021 of £58.3m (30 April 2021: £74.0m), reflecting trading activity and a number of one-off and non-recurring items.
|
Summary performance |
H1 22 £m |
H1 21 £m |
Change |
|
Group |
|
|
|
|
Revenue |
41.3 |
44.2 |
(7)% |
|
Gross profit |
26.2 |
29.6 |
(11)% |
|
Gross profit margin (%) |
63.4% |
67.0% |
(360)bps |
|
Operating (loss)/profit |
(11.1) |
6.9 |
(261)% |
|
Adjusted EBITDA1 |
(0.8) |
8.4 |
(110)% |
|
(Loss)/profit from total operations |
(20.2) |
6.8 |
(397)% |
|
Cash and cash equivalents |
58.3 |
75.8 |
(23)% |
|
KPIs2 |
|
|
|
|
Total fee income3 |
34.7 |
48.8 |
(29)% |
|
Instructions (number)4 |
21,131 |
34,150 |
(38)% |
|
Average revenue per instruction5 |
£1,642 |
£1,428 |
15% |
Vic Darvey, CEO, commented: “The first half was undoubtedly challenging, with the implementation of a major change to our operating model coinciding with the UK property market experiencing a substantial fall in new instructions. This dynamic led to a disappointing financial performance but we are confident that we now have the right levers in place to drive a stronger financial performance going forward.
“Central to our business transformation, is our move to a fully employed workforce which we are confident will increase conversion rates, drive higher standards and improve customer outcomes. Early signs are encouraging with recent rises in conversion levels and market share gains.”
Lettings
Purplebricks says it has ‘taken appropriate and swift actions’ to address the process issues that have adversely affected their lettings business in recent months, adding they are ‘very confident’ that all issues are being addressed and the business has stabilised.
The provision of £3.6m compensation is towards the lower end of the firm’s previous guidance.
Darvey continued “Our lettings business, while relatively small, has significant potential. We were disappointed by the process issues that we became aware of in our lettings business in December. These are being corrected and a root and branch review of the lettings business has been completed in relation to our processes and procedures.”
Outlook
Since the period-end, the company says it has continued to see a significant imbalance between the strong demand for housing and a very limited supply of stock, which has driven house prices higher.
Although housing supply has increased in January, the firm expect these market dynamics to continue through the second half of their financial year, which will continue to impact instructions and gross margins. In addition, the comparable performance will also be impacted by the expected increase in costs associated with our transition to a fully employed model, according to the statement.
He added: “Looking ahead, the outlook for the housing market remains uncertain and we expect the constrained levels of sales supply to continue throughout the second half. The initial results from our operational improvements are very encouraging and there are early signs of improving market conditions during January, although we do not anticipate a meaningful financial benefit until FY 23.”
Landlords could face fines after Purplebricks fails to protect tenancy deposits
If they stopped trying to be estate agents and concentrated on being passive intermediaries the challenge becomes an opportunity.
2 or 3% of the selling public want an FSBO service, someone to put their property on the portals so they are in control of the price , the haggle, the sale and the chasing up. Another 2 or 3 % want a cheap agency service, they expect the full works for as little as they can get away with paying.
Non geographic full service agency doesn’t work, the bits that win agents a foot through the front door to pitch for an instruction aren’t available to reps covering 6-10 activity centres. It’s time to realise what is holding the model back and do the stuff that works, well.
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If I was going to “implement a major change to the operating model“ of my company I would make sure it was one that made a profit rather than using it as an excuse to make a loss. If that is the reason he’s giving for making a loss then surely he should be sacked. This result in possibly the best year for Estate Agents since 2007.
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It’s astonishing how they failed to capitalise on the crazy 2021 market. The stupid Olympics advertising campaign was a waste of money and in my opinion damaged the brand. They need to go back to basics with a simple message. Shouldn’t be too difficult if they try.
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